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Tax deduction: How to save income tax?

legitimately. The tax saving investment options such as - equity-linked savings scheme (ELSS), public provident fund (PPF), employee provident fund (EPF) - can help you save income tax. The govt allows taxpayers to claim tax deductions on the money spent on investment instruments qualified for section 80C of the Income Tax Act.

First of all, you need to calculate your taxable income and the income tax slab applicable.

Tax Calculation

The amount that you can save using tax saving investment options depend on your

Under the section 80C of Income Tax Act, taxpayers can claim a tax deduction of up to Rs 1.5 lakhs. The money invested through instruments qualified for section 80C of the Income Tax Act will be directly deducted from your total taxable income. The salaried taxpayers can also claim house rent allowance (HRA) exemption by submitting expenditure document.

Total income - (HRA exemption + amount invested under section 80C) = total taxable income

Now, that you know your taxable income, the next step is to find out the income tax slab

Income Tax Slab for FY 2018-19 (For individuals and HUFs less than 60 years old)

Income up to Rs 2.5 lakh - Nil

Income from Rs 2.5 lakh to Rs 5 lakh - 5%

Income from Rs 5 lakh – Rs 10 lakh - 20%

Income more than Rs 10 lakh - 30%

Health and Education Cess - 4% of exact tax amount

Now, apply the tax slab on your taxable income and add Health & Education cess of 4% on tax amount. The result will be the

However, it should be noted that you can not save entire income tax using section 80C investments in cases your taxable amount is greater than Rs 2.5 lakh even after full Rs 1.5 lakh deduction.

You can also opt for other deductions such as - medical insurance premium paid (Section 80D), medical treatment of a dependent who is a person with disability (Section 80DD), medical treatment (Section 80DDB), Interest on loan taken for higher education (Section 80E), donations to certain funds, charitable institutions, etc. (Section 80G).

How is income tax calculated?

The income tax on your salary will be calculated depending on the tax slab.